There are situations where your employees’ compromise settlement will affect your social security benefits. However, these cases are generally rare because the only reason for any benefits being reduced is that incapacity earnings account for more than 80 percent of disability earnings or ‘average current earnings’. However, you should be aware of the potential reduction in benefits so that you can be prepared or potentially avoided. Does a workers compensation settlement affect social security disability?

Calculation of average current earnings 

Social security calculates average current earnings in one of three ways:

  • Average monthly salary formula: Social Security uses the average monthly salary to calculate the amount of invalidity allowance.
  • High-Five formula: Social Security uses the average monthly salary of the five best-paid subsequent calendar years.
  • High-One Formula: Social Security uses the average monthly salary of your best-paid calendar year over the past five years.

The High-One formula is used in the overwhelming majority of cases, although Social Security will use any of the methods that is most beneficial for you. However, average earnings are calculated if the combined amount of SSDI and monthly employee compensation is higher than 80% of average current earnings, a shift will apply. 

Does a workers compensation settlement affect social security disability?

Minimizing social security shifts

Employee compensation lawyers often try to settle agreements to minimize any shift of SSDI benefits. The Social Insurance Institution will analyze the language of the employee settlement document to decide what portion of the settlement is offset.

Lawyers will also draw up a settlement agreement to exclude medical and legal costs from the lump sum that is calculated on social security. The Social Insurance Institution will not take these expenses into account when calculating the deduction if the language of the settlement document is clear. If this language is not included in the settlement, Social Security may ask you to document medical and legal expenses before excluding these amounts when calculating the deduction.

The rules regarding what problems can be resolved and what language should be included in the settlement agreement are derived from state, not federal law, and therefore vary from state to state. If you are concerned that Social Security will lower your SSDI benefits due to employee compensation, you should consult a Disability Lawyer to help you resolve your employee compensation case in a way that provides you with as much money as possible each month. 

Things to consider

The only effect that the collection of employee compensation on SSDI has is that the total income obtained from employee compensation and SSDI cannot exceed 80% of previous income.

If the money you get from employee compensation and the money you are entitled to through SSDI is greater than 80% of your previous income, SSA will deduct enough money from your SSDI entitlement to make your sum fall below 80%. If your employee compensation ends running while collecting SSDI, notify the SSA and they will adjust your SSDI benefits accordingly.



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